Xiaomi Takes on India Tax Authority Over Royalty Tariffs in Closely Watched Case

Xiaomi has filed a Supreme Court petition to overturn a tax tribunal decision that deemed the company liable for $72 million in royalty taxes, a move that could reshape India’s contract‑manufacturing tax framework. 

Details Of the Tax Tribunal Ruling 

In November, a tax tribunal concluded that Xiaomi under‑valued imported component values for at least 3 years up to 2020 by omitting the 2%‑5% royalties paid to technology licensors such as Qualcomm, thereby triggering liability for $72 million in duties. 

Xiaomi’s Legal Arguments Before Supreme Court 

Xiaomi argues the tribunal wrongly labelled the firm as the “beneficial owner” of the components, insisting that customs duties should be the responsibility of the contract manufacturers and that royalty payments are separate contractual fees not subject to import tax. 

Read More: India-France Amend Tax Treaty; Capital Gains, Dividend Rules Updated! 

Potential Financial Impact and Market Implications 

If the ruling stands, the $72 million demand could swell to over $150 million with interest and penalties, stressing a company that reported $31.7 million profit in FY23‑24. Additionally, $610 million of Xiaomi India’s bank funds remain frozen pending a separate investigation. 

Broader Industry Reaction and Precedent Risks 

Former contract partners Flextronics India and Bharat FIH have also challenged the decision, highlighting concerns that the outcome may set a precedent for royalty taxation across sectors such as pharmaceuticals, autos and other manufacturing domains. 

Conclusion 

The Supreme Court’s verdict will clarify whether royalty fees on imported components fall within the remit of Indian customs, a determination that could affect the tax treatment of numerous multinational manufacturers operating through local contract assemblers. 

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